U.S. Bankruptcy Court Confirms ResCap’ Chapter 11 Plan

Bankruptcy Judge Martin Glenn of the United States Bankruptcy Court for the Southern District of New York has confirmed the Joint Chapter 11 Plan proposed by Residential Capital ("ResCap") and the Creditors' Committee. Confirmation of the Plan brought the largest chapter 11 case filed in 2012 to a successful conclusion after only 19 months.

In a release, Kramer Levin Naftalis & Frankel noted:

Kramer Levin Naftalis & Frankel represented the Creditors' Committee as co-proponent of the Plan. The Creditors' Committee was also represented by the investment banking firm of Moelis & Company and AlixPartners, as financial advisors. The foundation of the Plan is a $2.1 billion contribution from ResCap's parent company, Ally Financial, Inc. ("AFI") and a global settlement agreed to among the range of creditors involved in one of the most complex bankruptcies in history. The Kramer Levin team was led by Kenneth H. Eckstein, partner and co-chair of the firm's Corporate Restructuring and Bankruptcy Department. Jared Dermont led the team for Moelis & Company, and Alan Holtz led the team for AlixPartners. The Plan is expected to go effective within 14 days.

John S. Dubel, CEO of Financial Guaranty Insurance Company and co- chair of the Creditors' Committee said, "the Creditors' Committee is proud of the global settlement it was able to achieve in the case and looks forward to the Plan becoming effective before year end."

ResCap is a wholly owned subsidiary of AFI that originated and/ or serviced over 2.4 million domestic residential mortgage loans with a value of approximately $374 billion. On May 14, 2012, ResCap filed for bankruptcy with assets and liabilities in excess of $15 billion, making it the largest bankruptcy case filed in 2012. At the outset of the case, AFI agreed to pay ResCap $750 million in exchange for a full release of its own liability associated with ResCap's mortgage business.

From the outset of these cases, the Creditor's Committee spearheaded an investigation of causes of action against AFI that resulted in AFI increasing its settlement payment from $750 million to $2.1 billion. This, in turn, permitted a global settlement of a vast array of claims arising from ResCap's role as a leading originator and servicer of residential mortgages and issuer of residential mortgage-backed securities, a business that collapsed in the financial crisis of 2008, creating billions of dollars in losses and lawsuits against ResCap and its parent company, AFI. As lead counsel to the Creditor's Committee, Kramer Levin led the Creditors' Committee's investigation and played a pivotal role in constructing and bringing the global settlement to fruition.

A Kramer Levin litigation team worked with a forensic team from AlixPartners to investigate related-party transactions between ResCap and AFI, and bankruptcy, corporate, and litigation teams from Kramer Levin, Moelis, and Alix handled a wide range of transactional, litigation and bankruptcy matters on behalf of the Creditors' Committee in the case. The advisors for the Creditors' Committee worked alongside Morrison & Foerster, Centerview Partners and FTI Consulting, legal and financial advisors to ResCap.

Following five months of mediation under the direction of Bankruptcy Judge James Peck, in May 2013, ResCap, the Creditors' Committee, AFI, and certain other key creditor constituencies reached an agreement on the terms of a settlement that resolved a wide range of disputes and set the stage for a largely consensual plan confirmation process. The cornerstone of the settlement was AFI's agreement to nearly triple its original proposed plan contribution from $750 million to $2.1 billion - substantially increasing expected recoveries by all ResCap creditors. Eckstein noted that "Judge Peck played a remarkable role in mediating a global settlement in this complex and hotly contested case and all parties are grateful for his tireless efforts in seeing this case to a successful conclusion."

In addition to Eckstein, other significant members of the Kramer Levin teams include Corporate Restructuring partners Douglas Mannal, Philip Bentley and P. Bradley O'Neill; and Litigation partners Gregory A. Horowitz, Philip S. Kaufman, Norman C. Simon, and Jeffrey S. Trachtman.

The Creditors' Committee members are AIG Asset Management (U.S.), Allstate Life Insurance Company, The Bank of New York Mellon Trust Company, N.A., Deutsche Bank Trust Company Americas, Financial Guaranty Insurance Company, MBIA Insurance Corp., Rowena L. Drennen, U.S. Bank National Association, and Wilmington Trust, N.A. John Dubel of Financial Guaranty Insurance Company and Wilmington Trust N.A. served as Co-Chairs of the Creditors' Committee. The Debtors consist of Residential Capital and 50 of its subsidiaries, including primary operating subsidiaries Residential Funding Company and GMAC Mortgage.

"While there were numerous parties litigating for recoveries from ResCap and AFI, we saw an opportunity to avoid continued litigation, to maximize creditor recoveries, and to achieve closure through a mediated resolution of this hotly contested bankruptcy," said Eckstein. "We are gratified that the global settlement and plan provide an excellent resolution for all parties involved and provide a model for consensually resolving future complex cases."

Eckstein, who was recently named a fellow of the American College of Bankruptcy, serves as co-chair of Kramer Levin Naftalis & Frankel's 45-attorney Corporate Restructuring and Bankruptcy Department. He has played a role in many of the largest and most complex Chapter 11 cases and out of court workouts, including the bankruptcies of General Motors, Chrysler, Dewey LeBoeuf, Washington Mutual, General Maritime, Saint Vincent's Catholic Medical Centers, Bally Total Fitness, Adelphia, Owens Corning, and Dow Corning.

Kramer Levin's Corporate Restructuring and Bankruptcy Department was named one of Law360's "Top Practice Groups of 2012," one of only five bankruptcy practice firms selected for this honor. The firm also plays a role in the Detroit bankruptcy case, the Patriot Coal bankruptcy case and in several significant shipping company and hospital restructurings both in and out of bankruptcy.

Kramer Levin Naftalis & Frankel is a full-service law firm with offices in New York, Silicon Valley and Paris.

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